First, it is helpful to understand Arizona’s community property laws. In general, your son’s assets are considered separate property until commingled. Should he remarry, any assets acquired during marriage, including earned income, are considered joint assets. However, inherited assets may retain their separate property status if they are titled correctly and a paper trail maintained.

The best strategy to avoid commingling the assets would be for you to carve out a lifetime trust for him. This can be done within your revocable trust document and could even be drafted to provide flexibility for him to access the money when he needs it. When drafted properly, this should shield the assets from spouses and might also protect his inheritance from creditors.

With appropriate estate planning on your and your parents’ parts, you should be able to ensure that your son, not someone else, benefits from future inheritances.

Laurie Bagley,
Strategic Wealth Advisors,
Scottsdale, Ariz.

You should consult a local attorney familiar with Arizona law for specific advice. But generally speaking, you are right to be concerned about how to leave assets to your son. Inherited assets are often commingled and become joint property in the event of a divorce. “Live-ins” are often deemed as married under many state laws, requiring a divorce to legally end the union. In most states, inherited assets that are maintained in separate ownership are not subject to division in a divorce. The living trust can be the best solution to this problem.

Have your son and a qualified corporate trustee serve as co-trustees of the trust, and restrict the trust to paying out income only to your son for some extended period after your death, possibly 10 to 20 years. The trust language could provide for principal payments to be made to your son subject to unanimous agreement of both trustees, providing some degree of protection from a persuasive girlfriend or spouse.

Joe W. Bowie,
Retirement Investment Advisors,
Oklahoma City

Have your son consult with an Arizona attorney knowledgeable in common-law and community property issues so he knows the implications. Offer to pay for it if he is reluctant to do so. Encourage your parents to set up trusts to benefit your son and any future grandchildren. These should include GST provisions, so up to $1.5 million could pass from each trust to him or his offspring without incurring federal tax liability. These trusts could also grant him the right to invade their principal and income if necessary. The trusts could own and mortgage the house (he would make payments to the trust), likely keeping it as separate property. If your parents are reluctant to set up the trust, you might do it yourself so that their estates can go into a trust for your son and still give him the protection you desire. Also, be sure your living trust is designed to protect him as much as possible.
John W. Ueleke, Legacy Wealth,
Memphis, Tenn.

You and your parents should leave the property in trust for your son. Trusts are used not only to protect property from the beneficiary, but also to protect for the beneficiary. The trust could permit distributions to your son for his support, education, health care and/or to maintain or enhance his lifestyle. The trust should last your son’s lifetime, and he should not have the unilateral right to withdraw trust assets as he desires. By doing this, your son’s girlfriend will not acquire rights in the trust property, even if they eventually marry. Moreover, the trust assets will not be susceptible to the reach of other potential creditors of your son’s in the event he is sued for business or other reasons.

David A. Handler,
Kirkland & Ellis, Chicago